Employment Regulations

Agency opt out from employment regulations

All contractors who do any of their work though an agency will be asked to make a choice on whether to Opt Out from Employment Regulations. Some contractors will automatically Opt Out, but ideally it’s worth taking some time to think this through to ensure that this is the right decision in each case for every new contract you take on.

Why the Regulations were introduced

The overall purpose of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 is to protect job seekers and vulnerable temporary workers from unscrupulous employment agency practices. Although the Regulations are mainly aimed at the general population of people looking for temporary or permanent work there are also provisions which specifically relate to Limited Company contractors.

The purpose of the Opt Out option

This was built into the Regulations specifically to give highly skilled contractors the option of not being covered by the Regulations as in some circumstances these could potentially be seen as prohibitive to them.

Why Agencies prefer contractors to Opt Out

Opting Out makes things easier for Agencies, but legally they cannot make it a requirement of employment for contractors to Opt Out. Nor can they influence them in any way to do so, such as offering a different rate of pay for the work offered if they do Opt Out.

The key reasons an Agency will prefer a contractor to Opt Out are:

Without the protection of the Regulations the Agency can exert more control over what happens at the end of a contract to ensure that the contractor doesn’t go on to work directly for the client. This protects their future business.

The Agency won’t automatically have to pay the contractor if the client doesn’t pay them (although there are potential remedies for this).

It reduces the requirement for the Agency to thoroughly check candidates’ current and on-going suitability for the placement role, which means less admin and paperwork.

It’s worth noting that if the Opt Out is signed after ‘introduction or supply’ the Opt Out is deemed invalid which will make the Regulations applicable. In many cases this could potentially benefit the contractor but it’s a point to look out for if you’re determined to be Opted Out.

Benefits of Opting Out

By Opting Out a contractor loses all the protection of the Regulations but in return can potentially gain in other ways. One factor is that by Opting Out contractors are able to take up roles quickly due to the reduced need to check information on skills and experience, which can be a significant advantage. Another perceived benefit is that many believe that by Opting Out they are protecting their IR35 status because the Regulations only apply to workers who are ‘controlled’ by the end user. As ‘control’ is a key indicator of employment status it has become quite common practice for contractors to automatically Opt Out to help demonstrate their independent, self-employed status. In practice there is some debate on whether this would actually be helpful in an IR35 investigation, but nonetheless it can at least show the intention of the contractor as part of the overall employment arrangement.

If you are in doubt regarding your IR35 status in any way it is recommended that you seek the independent, professional advice of your contractor accountant.

Benefits of Opting In

The key benefits of Opting In are:

The contractor’s contractual terms must be confirmed in writing

There can be no contractual term which prevents the contractor working directly for the client

The Agency must pay the contractor even if the client does not pay the Agency

In theory the Regulations give protection to the contractor as was intended by the legislation. In practice, however, the wording can cause difficulties in interpretation and so far there is little case law to provide much needed clarity and certainty. Nonetheless, Opting In can still be worthwhile.

At Intouch our clients benefit from the advice of our experienced, qualified tax specialists who can provide clear, professional advice on all their tax, contractual and IR35 related issues. Intouch are professionally qualified accountants who specialise in providing online accountancy services to Limited Company contractors.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Employment regulations and AWR?

I get confused between Employment regulations and AWR (Agency workers directive). What are the key points about the Employment regulations and why do agencies want me to opt out? Should I opt out? Is this the same set of rights I may be entitled to under AWR?

Employment Regulations

The term ‘Employment Regulations’ is short for ‘Conduct of Employment Agencies and Employment Businesses Regulations’ which came into effect in April 2004. Their purpose is to protect temporary workers and those who hire them from exploitation through a set of minimum standards of conduct for commercial recruitment and employment agencies. The regulations cover a wide range of issues designed to protect all agency workers, including Limited Company contractors, working through a recruitment agency. Additionally, the regulations mean that all intermediaries supplying personnel are obliged to collect increased amounts of detailed information about the people they are placing with companies, such as proof of entitlement to work in the UK, references, or CRB checks on behalf of their clients.

A Limited Company contractor has the choice to accept the protection offered by the Regulations or to ‘Opt Out’. The downsides to opting out include losing protection from not being paid if the agency doesn’t get paid by the client, and the agency being free to introduce more onerous restrictive covenants than they would otherwise be able to. Many agencies will request that you sign an Opt Out agreement for exactly those reasons!

There is a school of thought that not Opting Out points toward you being under the control of the end client, and therefore subject to IR35. As IR35 is decided on the working conditions between you and the end client, this is not a deciding factor at all. If you have a strong working relationship that covers the main factors of Substitution, Control or lack of Mutuality of Obligation then remaining subject to the Employment Regulations will not suddenly turn you into a disguised employee.

AWR

AWR is short for the Agency Workers Regulation which is an EU directive which came into effect in October 2011. AWR relates to the rights of Agency Workers and persons employed in a company through intermediaries. It provides that all temporary workers receive the same standard employment conditions as permanent employees, such as basic pay and holiday pay, on completion of twelve weeks continuous employment.

AWR does not apply to Limited Company contractors who work through their own PSC provided they are outside of IR35 and genuinely in business on their own account.

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.